FAIR VALUE OF FINANCIAL INSTRUMENTS

Forward Foreign Exchange and Currency Option Contracts

The Corporation has foreign currency exposure primarily in the United Kingdom, Europe, and Canada. The Corporation uses financial instruments, such as forward and option contracts, to hedge a portion of existing and anticipated foreign currency denominated transactions. The purpose of the Corporation’s foreign currency risk management program is to reduce volatility in earnings caused by exchange rate fluctuations. Guidance on accounting for derivative instruments and hedging activities requires companies to recognize all of the derivative financial instruments as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets based upon quoted market prices for comparable instruments.

Interest Rate Risks and Related Strategies

The Corporation’s primary interest rate exposure results from changes in U.S. dollar interest rates. The Corporation’s policy is to manage interest cost using a mix of fixed and variable rate debt. The Corporation periodically uses interest rate swaps to manage such exposures. Under these interest rate swaps, the Corporation exchanges, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.

For interest rate swaps designated as fair value hedges (i.e., hedges against the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt due to changes in market interest rates.

In March 2013, the Corporation entered into fixed-to-floating interest rate swap agreements to convert the interest payments of (i) the $100 million, 3.85% notes, due February 26, 2025, from a fixed rate to a floating interest rate based on 1-Month LIBOR plus a 1.77% spread, and (ii) the $75 million, 4.05% notes, due February 26, 2028, from a fixed rate to a floating interest rate based on 1-Month LIBOR plus a 1.73% spread.

In January 2012, the Corporation entered into fixed-to-floating interest rate swap agreements to convert the interest payments of (i) the $200 million, 4.24% notes, due December 1, 2026, from a fixed rate to a floating interest rate based on 1-Month LIBOR plus a 2.02% spread, and (ii) $25 million of the $100 million, 3.84% notes, due December 1, 2021, from a fixed rate to a floating interest rate based on 1-Month LIBOR plus a 1.90% spread.

The notional amounts of the Corporation’s outstanding interest rate swaps designated as fair value hedges were $400 million at September 30, 2013.

The fair value accounting guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities that the company has the ability to access.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data such as quoted prices, interest rates and yield curves.

Level 3: Inputs are unobservable data points that are not corroborated by market data.

Based upon the fair value hierarchy, all of the forward foreign exchange contracts and interest rate swaps are valued at a Level 2.

Effects on Consolidated Balance Sheets

The location and amounts of derivative instrument fair values in the condensed consolidated balance sheet are below.



	(In thousands)
	September 30, 2013		December 31, 2012
Assets
Designated for hedge accounting
Interest rate swaps	$	—	$	677
Undesignated for hedge accounting
Forward exchange contracts	$	184	$	250
Total asset derivatives (A)	$	184	$	927
Liabilities
Designated for hedge accounting
Interest rate swaps	$	39,679	$	1,419
Undesignated for hedge accounting
Forward exchange contracts	$	251	$	170
Total liability derivatives (B)	$	39,930	$	1,589

(A)Forward exchange derivatives are included in Other current assets and interest rate swap assets are included in Other assets.

(B)Forward exchange derivatives are included in Other current liabilities and interest rate swap liabilities are included in Other liabilities.

Effects on Condensed Consolidated Statements of Earnings

Fair value hedge

The location and amount of gains or losses on the hedged fixed rate debt attributable to changes in the market interest rates and the offsetting gain (loss) on the related interest rate swaps for the three and nine months ended September 30, were as follows:



	(In thousands)
	Gain/(Loss) on Swap											Gain/(Loss) on Borrowings
	Three Months Ended						Nine Months Ended					Three Months Ended				Nine Months Ended
	September 30,						September 30,					September 30,				September 30,
Income Statement Classification	2013			2012			2013			2012		2013		2012		2013		2012
Other income, net	$	(3,106	)	$	(20	)	$	(39,679	)	$	1,771	$	3,106	$	20	$	39,679	$	(1,771	)

Undesignated hedges

The location and amount of gains and losses recognized in income on forward exchange derivative contracts not designated for hedge accounting for the three and nine months ended September 30, were as follows:



	(In thousands)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Derivatives not designated as hedging instrument	2013		2012		2013			2012
Forward exchange contracts:
General and administrative expenses	$	2,143	$	2,082	$	(3,693	)	$	1,912

Debt

The estimated fair value amounts were determined by the Corporation using available market information that is primarily based on quoted market prices for the same or similar issues as of September 30, 2013. Accordingly, all of the Corporation’s debt is valued at a Level 2. The fair values described below may not be indicative of net realizable value or reflective of future fair values. Furthermore, the use of different methodologies to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The carrying amount of the variable interest rate debt approximates fair value as the interest rates are reset periodically to reflect current market conditions.

On February 26, 2013, the Corporation issued $400 million of Senior Notes (the 2013 Notes). The 2013 Notes consist of $225 million of 3.70% Senior Notes that mature on February 26, 2023, $100 million of 3.85% Senior Notes that mature on February 26, 2025, and $75 million of 4.05% Senior Notes that mature on February 26, 2028. An additional $100 million of 4.11% Senior Notes that mature on September 26, 2028, were issued on September 26, 2013. The 2013 Notes are senior unsecured obligations, equal in right of payment to the Corporation's existing senior indebtedness. The Corporation, at its option, can prepay at any time all or any part of the 2013 Notes, subject to a make-whole payment in accordance with the terms of the Note Purchase Agreement. In connection with the issuance of the 2013 Notes, the Corporation paid customary fees that have been deferred and are being amortized over the term of the 2013 Notes. Under the terms of the Note Purchase Agreement, the Corporation is required to maintain certain financial ratios, the most restrictive of which is a debt to capitalization limit of 60%. The debt to capitalization ratio is calculated using the same formula for all of the Corporation's debt agreements and is a measure of the Corporation's indebtedness, as defined per the notes purchase agreement and credit agreement, to capitalization, where capitalization equals debt plus equity. The Corporation had the ability to borrow additional debt of $1.2 billion without violating our debt to capitalization covenant. The 2013 Notes also contain a cross default provision with respect to the Corporation’s other senior indebtedness.



	September 30, 2013				December 31, 2012
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Industrial revenue bond, due 2023	$	8,400	$	8,400	$	8,400	$	8,400
Revolving credit agreement, due 2017	—		—		286,800		286,800
5.74% Senior notes due 2013	—		—		125,011		128,198
5.51% Senior notes due 2017	150,000		164,174		150,000		168,491
3.84% Senior notes due 2021	99,075		99,075		100,677		100,677
3.70% Senior notes due 2023	225,000		218,520		—		—
3.85% Senior notes due 2025	91,065		91,065		—		—
4.24% Senior notes due 2026	178,668		178,668		198,581		198,581
4.05% Senior notes due 2028	66,513		66,513		—		—
4.11% Senior notes due 2028	100,000		91,244
Other debt	1,285		1,285		10,746		10,746
Total debt	$	920,006	$	918,944	$	880,215	$	901,893